CIDARA THERAPEUTICS, INC. Management report and analysis of the financial situation and operating results. (Form 10-K)

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You should read the following discussion and analysis along with our consolidated financial statements and related notes included elsewhere in this annual report.

Forward-Looking Statements

The following discussion contains forward-looking statements that involve risks
and uncertainties. These forward-looking statements involve risks and
uncertainties that could cause our actual results to differ materially from
those in the forward-looking statements, including, without limitation, the
risks set forth in Part II, Item 1A, "Risk Factors" in this Annual Report. See
"Special Note Regarding Forward-Looking Statements."

Overview

We are a biotechnology company focused on the discovery, development and
commercialization of long-acting therapeutics designed to transform the standard
of care for patients facing serious diseases. We are focused on infectious
diseases and oncology. Our lead product candidate is rezafungin acetate, an
intravenous formulation of a novel echinocandin antifungal. Rezafungin is being
developed as a once-weekly, high-exposure therapy for the first-line treatment
and prevention of serious, invasive fungal infections.

In addition, we are using our Cloudbreak® platform to develop a potential new
class of drugs called drug-Fc Conjugates, or DFCs, for the prevention and
treatment of serious diseases. Our initial development programs target influenza
and other viral infections, including RSV, HIV and the SARS-CoV-2 strains
causing COVID-19. In addition, we have expanded the Cloudbreak platform to
discover and develop DFCs to treat cancer.

Our business is subject to various trends, events or uncertainties that are
reasonably likely to cause our reported financial information not to be
necessarily indicative of future operating results or of future financial
condition. As discussed below, the COVID-19 pandemic has delayed our conduct of
clinical trials and other key activities and there is uncertainty regarding the
emergence of potential new viral strains. We may also be impacted by broader
macroeconomic conditions, high inflation, and supply chain disruptions. The
stock market, and in particular the market for pharmaceutical and biotechnology
company stocks, has recently experienced significant decreases in value. This
volatility and valuation decline have affected the market prices of securities
issued by many companies, often for reasons unrelated to their operating
performance. These and other uncertainties are discussed in greater detail
below.

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COVID-19 Update

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in financial markets.

We continue to monitor the potential impact of the COVID-19 global pandemic, and
particularly the Delta variant, on our business and maintain our previously
implemented measures designed to protect the health and safety of our workforce,
including a work-from-home policy in line with state and local requirements for
employees who can perform their jobs offsite. We are continuing our essential
research and laboratory activities at our facilities and are taking
precautionary measures to protect our employees working in our facilities in
such capacities, including establishing a written worksite-specific COVID-19
prevention plan and implementing a vaccine mandate.

We are reliant on our information technology systems, infrastructure and data to
conduct our business. Adopting a work-from-home policy during this pandemic has
increased the complexity of our computer systems, making them inherently more
vulnerable to service interruption or destruction, malicious intrusion and
random attack.

While we have not experienced any significant disruptions to our manufacturing or distribution supply chain to date, we are unable to fully assess the potential impact that an extended duration of this pandemic may have. on our manufacturing or distribution processes in the future.

As we continue to actively advance our rezafungin Phase 3 clinical development
program, we remain in close contact with our principal investigators and
clinical sites and continue to monitor the impact of COVID-19 on our trials,
expected timelines and costs on an ongoing basis. While the ReSPECT Phase 3
clinical trial for prophylaxis remains open for enrollment, we continue to
monitor the near- and long-term impact of COVID-19 on the ability of our
clinical investigators to recruit patients at each of our global clinical trial
sites. In addition, many clinical trial operational activities typically require
travel, such as site activation, monitoring, investigators' meetings and quality
audits. These activities are still impacted by travel restrictions.

The COVID-19 pandemic continues to affect areas in which we operate, and we
believe the outbreak continues to have a negative impact on our operating
results and financial condition. The extent of the impact of COVID-19 on our
operational and financial performance will depend on certain developments,
including the duration and spread of the outbreak, impact on our clinical
trials, employees and vendors, all of which are uncertain and cannot be
predicted. Given these uncertainties, we remain unable to reasonably estimate
the related impact to our business, operating results and financial condition,
if any. We will continue to evaluate the impact of the COVID-19 pandemic on our
business.

Rezafungin

Rezafungin is a novel molecule in the echinocandin class of antifungals. We are
developing rezafungin for the first-line treatment and prevention of serious,
invasive fungal infections which are associated with high mortality rates.

STRIVE Phase 2 Clinical Trial

In March 2018 and July 2019, we reported positive topline results from Parts A
and B, respectively, of STRIVE, our global, randomized Phase 2 clinical trial of
rezafungin. STRIVE was an international, multicenter, double-blind clinical
trial evaluating the safety, tolerability and efficacy of once-weekly dosing of
rezafungin compared to once-daily dosing of caspofungin in patients with
candidemia and/or invasive candidiasis. In the STRIVE clinical trial, rezafungin
met all of its objectives for efficacy, safety and tolerability in the treatment
of patients with candidemia and/or invasive candidiasis.

ReSTORE Phase 3 Clinical Trial

In December 2021, we reported positive topline results from ReSTORE, our Phase 3
pivotal clinical trial in patients with candidemia and/or invasive candidiasis.
ReSTORE was a global, randomized, double-blind, controlled trial evaluating the
efficacy and safety of rezafungin as a potential first-line treatment for
candidemia and invasive candidiasis. ReSTORE enrolled 187 patients and evaluated
one 400 mg dose of rezafungin for the first week followed by 200 mg of
rezafungin dosed once-weekly for up to four weeks in total. The treatment arm
was compared to approved daily dosing of caspofungin in a 1:1 randomization.

In the ReSTORE trial, rezafungin met the primary endpoint for the U.S. FDA NDA
submission of all-cause mortality at Day 30, and also met the primary endpoint
for the EMA MAA submission of global cure at Day 14. Both results demonstrated
statistical non-inferiority of rezafungin dosed once-weekly, versus caspofungin
dosed once-daily, the current standard of care. Patients receiving rezafungin
cleared their blood of fungal pathogens a median of 3 hours faster than patients
receiving caspofungin (23.9 vs 27.0 hours, respectively) and were discharged
from the ICU a median 9.5 days earlier than patients receiving caspofungin (5.0
vs 14.5 days, respectively).

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Summary of key efficacy results from the ReSTORE clinical trial:

                                          Rezafungin once-weekly              Caspofungin once-daily                    95% CI
                                              400mg Wk1/200mg                      70mg D1/50mg
                                                N=93 (mITT)                         N=94 (mITT)
                                                   n (%)                               n (%)
Primary Endpoints
   Day 30 All-Cause Mortality (FDA)              22 (23.7)                           20 (21.3)                     2.4 (-9.7, 14.4)
           Day 14 Global Cure (EMA)              55 (59.1)                           57 (60.6)                   -1.11 (-14.9, 12.7)

Secondary criteria

       Day 5 Mycologic Eradication2            50/64 (78.1)                        46/67 (68.7)
                  Day 5 Global Cure              52 (55.9)                           49 (52.1)
      Day 14 Mycologic Eradication2            46/64 (71.9)                        47/67 (70.1)
Exploratory Endpoints
      Day 1 Negative Blood Culture3            36/67 (53.7)                        30/65 (46.2)
      Day 2 Negative Blood Culture3            49/66 (74.2)                        41/64 (64.1)
       Median ICU Length of Stay3,4              5.0 days                            14.5 days
                                                  (n=17)                              (n=28)


1 Point estimate and confidence interval for the difference is adjusted for the
randomization factors. 2 Patients with candidemia only. 3 Not powered for
statistical comparison. 4 All patients in the ICU on day 1 or admitted to the
ICU during the study included except for those who died prior to ICU discharge.

Rezafungin was generally well tolerated. Overall rates of adverse events and
serious adverse events were comparable in patients receiving rezafungin and
caspofungin. Rates of adverse events leading to study drug discontinuation were
also similar for rezafungin and caspofungin.

Based on the positive topline results of our ReSTORE trial and recent positive
pre-NDA discussions with the FDA about our clinical and nonclinical data
package, we expect to file an NDA application for rezafungin for the treatment
of candidemia and/or invasive candidiasis with the FDA, and similar applications
with other regulators outside the U.S., in mid-2022.

We have completed the ReSTORE trial and conducted the primary analyses required
for potential approval in U.S. and Europe but are continuing to enroll and treat
patients in China to support Chinese regulatory filings.

Integrated ReSTORE Phase 3 and STRIVE Phase 2 results

The integrated results from our Phase 3 ReSTORE trial and our Phase 2 STRIVE trial in all patients who received the 400 mg/200 mg dosage regimen demonstrate that rezafungin is non-inferior to caspofungin for the treatment of candidemia and invasive candidiasis. The data showed numerically improved results compared to caspofungin on several key measures:

•All-cause mortality at day 30, the FDA’s primary endpoint, was 18.7% for rezafungin and 19.4% for caspofungin.

•Mycological eradication at D5 and D14 was 73.4% and 71.9%, respectively, for rezafungin and 64.5% and 68.4%, respectively, for caspofungin.

•Mycological eradication on day 5 for patients with candidemia only was 80.0% for rezafungin and 67.8% for caspofungin.

•Patients receiving rezafungin had a shorter median time to negative blood culture (22.3 days) compared to caspofungin (26.3 days).

ReSPECT Phase 3 Clinical Trial

We are currently conducting the ReSPECT, single, global, randomized,
double-blind, controlled Phase 3 pivotal clinical trial in patients undergoing
allogeneic blood and marrow transplant to assess rezafungin in a 90-day
prophylaxis regimen to prevent infections due to Candida, Aspergillus and
Pneumocystis. Rezafungin, dosed at 400 mg for the first week followed by 200 mg
once weekly doses out to 90 days, is being compared to a regimen containing two
drugs (an azole and Bactrim) dosed once daily for 90 days. The primary efficacy
outcome for the FDA and EMA is fungal-free survival at

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day 90. We expect this trial to enroll approximately 462 patients. While the
ReSPECT trial remains open for enrollment, we continue to monitor the near- and
long-term impact of COVID-19 on the ability of our clinical investigators to
recruit patients at each of our global clinical trial sites.

Mundipharma collaboration agreement

On September 3, 2019, we announced a strategic partnership with Mundipharma to
develop and commercialize rezafungin in an intravenous formulation for the
treatment and prevention of invasive fungal infections. Under the terms of the
Mundipharma Collaboration Agreement, we granted Mundipharma an exclusive,
royalty-bearing license to develop, register and commercialize rezafungin
outside the U.S. and Japan. The total potential transaction value is
$568.4 million, including an equity investment, an up-front payment, global
development funding, and certain development, regulatory, and commercial
milestones.

As of December 31, 2021, we have received $9.0 million from the sale of our
equity to Mundipharma, a $30.0 million up-front payment and $42.3 million in
global development funding, which includes an $11.1 million milestone payment we
received in January 2021 which is creditable against future royalties payable to
us. In addition, we received $2.8 million in January 2022 pursuant to a
milestone achieved in December 2021.

Cloudbreak Platform

We believe our Cloudbreak platform has the potential to offer a fundamentally
new approach to prevent and treat serious diseases, by developing product
candidates designed to provide potent disease targeting activity and immune
system engagement in a single long-acting molecule. The Cloudbreak platform
recognizes that serious disease often results when a pathogen or cancer cell
evades or overcomes the host immune system. Our Cloudbreak DFC candidates are
designed to counter diseases in two ways: prevention of disease proliferation or
immune evasion by directly targeting and, where applicable, by focusing the
immune system on a pathogen or infected cell. We believe this is a potentially
transformative approach, distinct from current therapies, monoclonal antibodies
and vaccines. In addition, DFCs are designed to have several advantages,
including:

•multivalent bonding, which has the potential to increase potency;

•ability to engage different targets on the same pathogen to decrease resistance
or, in the case of a cancerous cell, to serve as a "drug cocktail" in a single
molecule, which may improve response to treatment;

•Ability to target multiple viral pathogens or oncological targets with a single DFC; and

•potential for universal coverage against all viral variants and all people, regardless of their immune status.

In contrast to monoclonal antibodies, our DFCs are smaller, have the potential
for better tissue penetration and are designed to target multiple sites. Unlike
small molecules, we believe DFC optimization can be focused primarily on
potency.

Our lead Cloudbreak candidates are DFCs for the prevention and treatment of
influenza, or influenza DFCs. In September 2020, we nominated CD388, our
influenza DFC, as a development candidate. CD388 is similar to our previous
development candidate, CD377, but provides the potential for longer-lasting
protection from influenza. We submitted an IND for CD388 in December 2021. In
January 2022, Cidara received correspondence from the FDA affirming that the
30-day review period concluded and the IND was active. We plan to initiate a
Phase 1 study in healthy volunteers before the end of the current quarter. This
study will be fully funded by Janssen as part of the Janssen Collaboration
Agreement.

The Cloudbreak platform has also enabled us to expand the development of DFCs to
target other life-threatening viruses, including RSV and HIV. In response to the
global pandemic, we are also leveraging our Cloudbreak platform to identify new
DFCs against Coronavirus, or CoV, including the strains causing COVID-19. In
addition, we have expanded the Cloudbreak platform beyond infectious diseases to
discover and develop highly potent DFCs that can target multiple pathways with a
single DFC for oncologic diseases.

Janssen cooperation agreement

At March 31, 2021we entered into the Janssen Collaboration Agreement with Janssen to develop and commercialize one or more DFCs based on our Cloudbreak platform for the prevention and treatment of influenza.

Under the terms of the Janssen Collaboration Agreement, we will collaborate in
the research, preclinical and early clinical development of CD388, or another
mutually-agreed influenza DFC development candidate, under a mutually-agreed
research plan with the objective of advancing development through Phase 1
clinical trials and the first Phase 2 clinical trial. We will be responsible for
performing all IND-enabling studies and clinical trials under the research plan.
Both parties will be responsible for conducting certain specified chemistry,
manufacturing and controls development activities under the research plan.
Janssen will be solely responsible, and reimburse us for internal personnel and
out-of-pocket costs

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incurred in performing the research plan activities in accordance with an agreed
budget. After completion of the research plan and upon its election to proceed
with development, Janssen will be solely responsible for late-stage development,
manufacturing, registration and commercialization. Upon the effectiveness of the
Janssen Collaboration Agreement, Janssen paid us an upfront payment of
$27.0 million. As of the execution of the Janssen Collaboration Agreement, we
are entitled to reimbursement by Janssen of up to $58.2 million in research and
development costs incurred in conducting research plan activities. As of
December 31, 2021, we have received the $27.0 million up-front payment and
$10.2 million in research and development reimbursements.

We are eligible to receive up to $240.0 million in development and regulatory
milestone payments from Janssen for successful completion of certain activities
over the next several years, including but not limited to initiation of a Phase
1 trial for CD388, Janssen's decision to proceed with clinical development and
initiation of a pivotal trial. In addition, we may be eligible to receive
approximately $455.0 million in commercial milestones as well as royalties on
tiers of annual net sales of products at rates from the mid-single digits to the
high-single digits.

Liquidity Overview

Since our inception, we have devoted substantially all of our financial
resources and efforts to research and development and have incurred significant
operating losses. As of December 31, 2021, we had an accumulated deficit of
$377.2 million. We expect to continue to incur significant expenses and
increasing operating losses for the foreseeable future. In connection with the
preparation of our financial statements for the year ended December 31, 2021, we
performed an analysis of our ability to continue as a going concern. We believe,
based on our current business plan, that our existing cash and cash equivalents
will not be sufficient to fund our obligations for twelve months from the
issuance of these financial statements. Our ability to execute our current
business plan depends on our ability to obtain additional funding through equity
offerings, debt financings or potential licensing and collaboration
arrangements. We may not be able to raise additional funding on terms acceptable
to us, or at all, and any failure to raise funds as and when needed will
compromise our ability to execute on our business plan.

OVERVIEW OF FINANCIAL OPERATIONS

Revenue

To date, we have generated all of our revenues from our strategic partnerships
with Mundipharma and Janssen. In the future, we may generate revenue from a
combination of license fees and other upfront payments, other funded research
and development agreements, milestone payments, product sales, government and
other third-party funding and royalties in connection with strategic alliances.
We expect that any revenue we generate will fluctuate from quarter-to-quarter as
a result of the timing of our achievement of nonclinical, clinical, regulatory
and commercialization milestones, the timing and amount of payments relating to
such milestones and the extent to which any of our products are approved and
successfully commercialized. If we are unable to fund our development costs or
we are unable to develop product candidates in a timely manner or obtain
regulatory approval for them, our ability to generate future revenues and our
results of operations and financial position would be adversely affected.

Research and development costs

To date, our research and development expenses have related primarily to
nonclinical development of our rezafungin acetate and our Cloudbreak platform,
as well as clinical development of rezafungin acetate. Research and development
expenses consist of wages, benefits and stock-based compensation for research
and development employees, as well as the cost of scientific consultants,
facilities and overhead expenses, laboratory supplies, manufacturing expenses,
and nonclinical and clinical trial costs. We accrue clinical trial expenses
based on work performed, which relies on estimates of total costs incurred based
on patient enrollment, completion of studies or other activities within studies
and other events.

Research and development costs are expensed as incurred and costs incurred by
third parties are expensed as the contracted work is performed. We accrue for
costs incurred as the services are being provided by monitoring the status of
the study or project and the invoices received from our external service
providers. We adjust our accruals as actual costs become known.

We may receive potential research and development funding through a partnership
from the National Institute of Allergy and Infectious Diseases. We have
evaluated the terms of the grants to assess our obligations and the
classification of funding received. Amounts received for funded research and
development are recognized in the statement of operations as a reduction to
research and development expense over the grant period as the related costs are
incurred to meet our obligations.

Research and development activities are central to our business model. Product
candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of development, primarily due to
the

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increased size and duration of later-stage clinical trials. We expect our
research and development expenses to increase over the next several years as we
continue to conduct nonclinical and clinical studies, expand our research and
development pipeline and progress our product candidates through clinical
trials. However, it is difficult to determine with certainty the duration, costs
and timing to complete our current or future nonclinical programs and clinical
trials of our product candidates.

The duration, costs and timing of clinical trials and development of our product
candidates will depend on a variety of factors that include, but are not limited
to, the following:

•the impact of the COVID-19 pandemic and other similar health crises;

•trial costs per patient;

•the number of patients taking part in the trials;

•the number of sites included in the trials;

•the countries in which the trials are taking place;

•the time needed to enroll eligible patients;

•the number of doses patients receive;

•patient drop-out or default rates;

•possible additional safety monitoring or other studies requested by regulatory authorities;

• the duration of the patient’s follow-up;

•the development phase of the candidate product; and

•the efficacy and safety profile of the candidate products.


Research and development expenses by major program or category were as follows
(in thousands):

                                                 Year ended December 31,
                                             2021          2020          2019
Rezafungin                                $ 43,175      $ 43,011      $ 27,100
Cloudbreak platform                         10,497         7,574         3,392
Personnel costs                             17,135        15,151        13,559

Other research and development costs 2,280 2,281 2,350 Total research and development costs $73,087 $68,017 $46,401


We typically deploy our employees, consultants and infrastructure resources
across our programs. Thus, some of our research and development expenses are not
attributable to an individual program but are included in other research and
development expenses as shown above.

In addition, the probability of success for each product candidate will depend
on numerous factors, including competition, manufacturing capability and
commercial viability. We will determine which programs to pursue and how much to
fund each program in response to the scientific and clinical success of each
product candidate, as well as an assessment of each product candidate's
commercial potential.

General and administrative expenses

General and administrative expenses consist primarily of salaries and related
benefits, including stock-based compensation, related to our executive, finance,
legal, business development, commercial planning and support functions. Other
general and administrative expenses include facility and overhead costs not
otherwise included in research and development expenses, consultant expenses,
travel expenses and professional fees for auditing, tax, legal, and other
services. We expect that general and administrative expenses will increase in
the future as we expand our operating activities and incur additional costs
associated with operating as a publicly traded company. These increases will
likely include legal fees, accounting fees, directors' and officers' liability
insurance premiums and costs associated with investor relations.

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Other income (expenses)

Other income (expense) consists primarily of the change in the fair value of the
contingent forward purchase obligation and related issuance costs, interest
income and expense, and various income or expense items of a non-recurring
nature. We earn interest income from interest-bearing accounts and money market
funds for cash and cash equivalents. Interest expense represents interest
payable related to term loans and the amortization of debt issuance costs.

Conditional forward purchase obligation

On May 21, 2018, we entered into a subscription agreement with certain investors
providing for the purchase and sale of up to an aggregate of $120.0 million of
common stock and preferred stock in three closings. The second and optional
third closings and warrants related to the optional third closing were to be
triggered by our announcement of topline data from our STRIVE Part B Phase 2
clinical trial of rezafungin. We determined that these closings are classified
as liabilities and represent contingent forward purchase obligations. These
liabilities are recorded at their estimated fair value initially and on a
recurring basis. The liability was initially recorded at $4.3 million on May 21,
2018, and fair value adjustments resulting in a gain of $0.4 million were
recorded during the year ended December 31, 2019. Because we elected not to
consummate the second closing of the offering in August 2019, the contingent
forward purchase obligation did not exist as of December 31, 2021 or 2020.

Beneficial conversion function

In February 2020, we completed a rights offering, pursuant to which we sold
6,639,307 shares of common stock and 531,288 shares of Series X Convertible
Preferred Stock for gross proceeds of $30.0 million. Because the effective
conversion price of the Series X Convertible Preferred Stock on the commitment
date was below the fair value of the common stock at the date of issuance, a
beneficial conversion feature with a calculated fair value of $2.8 million
existed at the issuance date. As the Series X Convertible Preferred Stock was
fully convertible at issuance, the full $2.8 million was recorded at issuance as
a one-time deemed dividend on February 12, 2020. This one-time, non-cash deemed
dividend impacted accumulated deficit and additional paid in capital at December
31, 2020 and net loss attributable to common stockholders and net loss
attributable to common stockholders per share for the year ended December 31,
2020.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations
is based upon financial statements that we have prepared in accordance with
accounting principles generally accepted in the U.S. The preparation of these
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities as of the date of the financial statements, and the
revenues and expenses incurred during the reporting periods. We believe that the
estimates, judgments and assumptions are reasonable based upon information
available to us at the time that these estimates, judgments and assumptions are
made. To the extent there are material differences between these estimates,
judgments or assumptions and actual results, our financial statements will be
affected. Historically, revisions to our estimates have not resulted in a
material change to our financial statements. While our significant accounting
policies are more fully described in Note 2 to our consolidated financial
statements appearing elsewhere in this Annual Report on Form 10-K, the
significant accounting estimates that we believe are important to aid in fully
understanding and evaluating our reported financial results include the
following:

Revenue recognition

We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts
with Customers, or Topic 606, which applies to all contracts with customers,
except for contracts that are within the scope of other standards, such as
leases, insurance, collaboration arrangements and financial instruments. Under
Topic 606, an entity recognizes revenue when its customer obtains control of
promised goods or services, in an amount that reflects the consideration that
the entity expects to receive in exchange for those goods or services. To
determine revenue recognition for arrangements that an entity determines are
within the scope of Topic 606, the entity performs the following five steps: (i)
identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv)
allocate the transaction price to the performance obligations in the contract;
and (v) recognize revenue when (or as) the entity satisfies a performance
obligation. We only apply the five-step model to contracts when it is probable
that we will collect the consideration we are entitled to in exchange for the
goods or service we transfer to a customer. At contract inception, once the
contract is determined to be within the scope of Topic 606, we assess the goods
or services promised within each contract and identify those that are
performance obligations, and assess whether each promised good or service is
distinct. We then recognize as revenue the amount of the transaction price that
is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied.

In a contract with multiple performance obligations, we must develop estimates
and assumptions that require judgment to determine the underlying stand-alone
selling price for each performance obligation which determines how the
transaction

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price is allocated among the performance obligation. The estimation of the
stand-alone selling price(s) may include estimates regarding forecasted revenues
or costs, development timelines, discount rates, and probabilities of technical
and regulatory success. We evaluate each performance obligation to determine if
it can be satisfied at a point in time or over time. Any change made to
estimated progress towards completion of a performance obligation and,
therefore, revenue recognized will be recorded as a change in estimate. In
addition, variable consideration must be evaluated to determine if it is
constrained and, therefore, excluded from the transaction price.

If a license to our intellectual property is determined to be distinct from the
other performance obligations identified in a contract, we recognize revenues
from the transaction price allocated to the license when the license is
transferred to the licensee and the licensee is able to use and benefit from the
license. For licenses that are bundled with other promises, we utilize judgment
to assess the nature of the combined performance obligation to determine whether
the combined performance obligation is satisfied over time or at a point in time
and, if over time, the appropriate method of measuring progress for purposes of
recognizing revenue from the allocated transaction price. We evaluate the
measure of progress at each reporting period and, if necessary, adjust the
measure of performance and related revenue or expense recognition as a change in
estimate.

At the inception of each arrangement that includes milestone payments, we
evaluate whether the milestones are considered probable of being reached. If it
is probable that a significant revenue reversal would not occur, the associated
milestone value is included in the transaction price. Milestone payments that
are not within our or a collaboration partner's control, such as regulatory
approvals, are generally not considered probable of being achieved until those
approvals are received. At the end of each reporting period, we re-evaluate the
probability of achievement of milestones that are within our or a collaboration
partner's control, such as operational development milestones and any related
constraint, and, if necessary, adjust our estimate of the overall transaction
price. Any such adjustments are recorded on a cumulative catch-up basis, which
will affect collaboration revenues and earnings in the period of adjustment.
Revisions to our estimate of the transaction price may also result in negative
collaboration revenues and earnings in the period of adjustment.

For arrangements that include sales-based royalties, including commercial
milestone payments based on the level of sales, and a license is deemed to be
the predominant item to which the royalties relate, we will recognize revenue at
the later of (i) when the related sales occur, or (ii) when the performance
obligation to which some or all of the royalty has been allocated has been
satisfied, or partially satisfied. To date, we have not recognized any royalty
revenue from collaborative arrangements.

In September 2019, the we entered into the Mundipharma Collaboration Agreement
with Mundipharma. We concluded that there were three significant performance
obligations under the Mundipharma Collaboration Agreement: the license, the
research and development services, and the clinical supply services, and that
the obligations are distinct from each other. Revenue associated with the
license was recognized upon delivery in September 2019.

In March 2021, we entered into the Janssen Collaboration Agreement with Janssen.
We concluded that there were three significant performance obligations under the
Janssen Collaboration Agreement: the license, the research and development
services, and the clinical supply services, and that the obligations are
distinct from each other. Revenue associated with the license was recognized
upon delivery in May 2021.

We concluded that progress towards completion of the research and development
and clinical supply performance obligations related to the Mundipharma
Collaboration Agreement is best measured in an amount proportional to the
collaboration expenses incurred and the total estimated collaboration expenses.
We periodically review and update the estimated collaboration expenses, when
appropriate, which may adjust revenue recognized for the period. While such
changes to our estimates have no impact on our reported cash flows, the amount
of revenue recorded in the period could be materially impacted. Revenue for the
Janssen Collaboration Agreement is recognized based on actual amounts billed as
the underlying services are provided and billed at market rates. The transaction
prices to be recognized as revenue under both the Mundipharma Collaboration
Agreement and the Janssen Collaboration Agreement consist of upfront payments
and estimated reimbursable research and development and clinical supply costs.

Potential future payments for variable consideration, such as clinical, regulatory or commercial milestones, will be recognized when it is probable that, if recorded, a material reversal will not occur. Potential future royalty payments will be recognized as revenue when the associated sales occur.

See note 8 of the financial statements for additional information.

Research and development costs

Research and development expenses consist of wages, benefits and stock-based
compensation charges for research and development employees, scientific
consultant fees, facilities and overhead expenses, laboratory supplies,
manufacturing expenses, and nonclinical and clinical trial costs. We accrue
nonclinical and clinical trial expenses based on work performed, which relies on
estimates of total costs incurred based on patient enrollment, completion of
studies, and other

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events. We periodically check the accuracy of these estimates with our service providers and make adjustments if necessary.

Costs incurred for the purchase of technology and intellectual property assets are charged to research and development expenses if it has not been conclusively proven that the technology is feasible and has no other future use .

Accumulation of preclinical and clinical trials

We make estimates of our accrued expenses as of each balance sheet date in our
financial statements based on the facts and circumstances known to us at that
time. Our accrued expenses for preclinical studies and clinical trials are based
on estimates of costs incurred and fees that may be associated with services
provided by contract research organizations, or CROs, clinical trial
investigational sites and other clinical trial-related activities. Payments
under certain contracts with such parties depend on factors such as successful
enrollment of patients, site initiation and the completion of clinical trial
milestones. In accruing for these services, we estimate the time period over
which services will be performed and the level of effort to be expended in each
period. If possible, we obtain information regarding unbilled services directly
from these service providers. However, we may be required to estimate these
services based on other information available to us. If we underestimate or
overestimate the activities or fees associated with a study or service at a
given point in time, adjustments to research and development expenses may be
necessary in future periods. Historically, our estimated accrued liabilities
have approximated actual expense incurred. Subsequent changes in estimates may
result in a material change in our accruals.

Stock-based compensation

We account for stock-based compensation expense related to stock options,
Restricted Stock Units, or RSUs, Performance-based RSUs, or PRSUs, and Employee
Stock Purchase Plan, or ESPP, rights by estimating the fair value on the date of
grant. The Company estimates the fair value of stock options granted to
employees and non-employees using the Black-Scholes option pricing model. The
fair value of RSUs and PRSUs granted to employees is estimated based on the
closing price of the Company's common stock on the date of grant.

The assumptions included in the Black-Scholes option pricing model include (a)
the risk-free interest rate, (b) the expected volatility of our stock, (c) the
expected term of the award, and (d) the expected dividend yield. For periods
ending on or before December 31, 2020, we based the estimate of expected
volatility on the historical volatility of a group of similar companies that are
publically traded, due to the lack of an adequate history of a public market for
the trading of our common stock and a lack of adequate company-specific
historical and implied volatility data. For these analyses, we selected
companies with comparable characteristics, including enterprise value, risk
profiles, and position within the industry, and with historical share price
information sufficient to meet the expected life of the stock-based awards. We
computed the expected volatility data using the daily close prices for the
selected companies' shares during the equivalent period of the calculated
expected term of the our stock-based awards. In January 2021, we began to
compute the historical volatility data using the daily close prices for our
common stock during the equivalent period of the calculated expected term of our
stock-based awards. We estimated the expected life of employee stock options
using the "simplified" method, whereby the expected life equals the average of
the vesting term and the original contractual term of the option. The risk-free
interest rates for periods within the expected life of the option are based on
the yields of zero-coupon U.S. treasury securities. The expected dividend yield
of zero reflects that we have not paid cash dividends since inception and do not
intend to pay cash dividends in the foreseeable future.

For awards subject to time-based vesting conditions, including those with a
graded vesting schedule, stock-based compensation expense is recognized using
the straight-line method. For performance-based awards to employees, (i) the
fair value of the award is determined on the grant date, (ii) we assess the
probability of the individual performance milestones under the award being
achieved and (iii) the fair value of the shares subject to the milestone is
expensed over the implicit service period commencing once management believes
the performance criteria is probable of being met.

We recognize forfeitures related to stock-based compensation as they occur and
any compensation cost previously recognized for awards for which the requisite
service has not been completed is reversed in the period that the award is
forfeited.

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RESULTS OF OPERATIONS

Comparison of years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended
December 31, 2021 and 2020 (in thousands):

                                   Year ended December 31,
                                      2021                2020         Change
Collaboration revenue        $      49,572             $ 12,067      $ 37,505
Research and development            73,087               68,017         5,070
General and administrative          18,740               15,899         2,841
Other expense, net                    (212)                (262)           50


Collaboration revenue

Collaboration revenue was $49.6 million and $12.1 million for the years ended
December 31, 2021 and 2020, respectively. Revenue for the year ended
December 31, 2021 included $27.0 million of revenue recognized upon transfer of
an intellectual property license to Janssen in May 2021 and $2.0 million of
revenue recognized upon the achievement of a milestone under the Mundipharma
Collaboration Agreement in December 2021. The remaining revenue for 2021 relates
to ongoing research and development and clinical supply services provided to
Mundipharma and Janssen of $11.2 million and $9.4 million, respectively. Revenue
for the year ended December 31, 2020 relates to ongoing research and development
and clinical supply services provided to Mundipharma.

Research and development costs

Research and development expenses were $73.1 million for the year ended
December 31, 2021 compared to $68.0 million for the year ended December 31, 2020. The increase in research and development expenses is mainly due to increased expenses associated with our Cloudbreak platform and higher personnel costs.

General and administrative expenses General and administrative expenses were $18.7 million for the year ended
December 31, 2021 compared to $15.9 million for the year ended December 31, 2020. The increase in general and administrative expenses is mainly due to the increase in consulting, legal and personnel costs.

Other expense, net
Other expense, net for the years ended December 31, 2021 and 2020 related
primarily to interest expense in connection with our loan from Pacific Western
Bank, offset by interest income generated from cash held in interest-bearing
investments.

CASH AND CAPITAL RESOURCES

Our primary sources of liquidity are our cash and cash equivalents, as well as
the cash flows generated from our partnerships with Mundipharma and Janssen,
equity and debt financings. We have devoted our resources to funding research
and development programs, including research, preclinical and clinical
development activities.

Our ability to fund future operating needs will depend on a combination of
equity, debt or other financing structures, receipt of payments under the
Mundipharma Collaboration Agreement and the Janssen Collaboration Agreement, as
well as potentially entering into other collaborations, strategic alliances or
licensing arrangements with third parties or receiving government and/or
charitable grants or contracts. Our ability to raise additional capital may also
be adversely impacted by potential worsening global economic conditions and the
recent disruptions to, and volatility in, financial markets in the U.S. and
worldwide resulting from the ongoing COVID-19 pandemic.

We are eligible to receive up to $240.0 million in development and regulatory
milestone payments from Janssen for successful completion of certain activities
over the next several years, including but not limited to initiation of a Phase
1 trial for CD388, Janssen's decision to proceed with clinical development and
initiation of a pivotal trial. In addition, we may be eligible to receive
approximately $455.0 million in commercial milestones as well as royalties on
tiers of annual net sales of products at rates from the mid-single digits to the
high-single digits.

At November 8, 2018we have entered into an agreement for the sale by way of a controlled offer of shares with Cantor Fitzgerald & Co.or the Sales Agreement, pursuant to which we may offer and sell, from time to time, at our sole discretion, shares of our common stock

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stock having an aggregate offering price of up to $50.0 million. As of December
31, 2021, the aggregate offering price remaining under the Sales Agreement was
$48.5 million.

The maturity date of our loan with Pacific Western Bank is July 3, 2022, at
which time all obligations under the Loan Agreement will be due and payable. As
of December 31, 2021, future principal payments due under the loan agreement
were $2.6 million.

Our lease with Nancy Ridge Technology Center, L.P. expires on December 31, 2023
with options for two individual two-year extensions, which have not been
exercised, and remain in effect and available to the Company. As of December 31,
2021, the Company was not reasonably certain that it would exercise the
extension options, and therefore did not include these options in the
determination of the total lease term for accounting purposes. Total
undiscounted operating lease payments are $2.8 million as of December 31, 2021.

The Company enters into contracts in the normal course of business with vendors
for research and development activities, manufacturing, and professional
services. These contracts generally provide for termination either on notice or
after a notice period.

As discussed further below, we believe that our existing cash and cash
equivalents will not be sufficient to fund our obligations for the next twelve
months. There are many factors that could impact our operating cash flow, most
notably achievement of milestones under our Mundipharma and Janssen
Collaboration Agreements.

We are mindful that conditions in the current macroeconomic environment could
affect our ability to achieve our goals. We operate and conduct clinical trials
in countries that face economic volatility and weakness. Sustained weakness or
further deterioration of the local economies and currencies and adverse effects
of the impact of the ongoing COVID-19 pandemic may pose operational challenges
in those countries. We will continue to monitor these conditions and will
attempt to adjust our business plans, as appropriate, to mitigate macroeconomic
risks.

We enter into contracts in the normal course of business with vendors for
research and development activities, manufacturing, and professional services
that generally provide for termination either on notice or after a notice
period. Our material cash requirements include costs to complete agreed-upon
activities under our Mundipharma and Janssen Collaboration agreements, as well
as personnel and general and administrative support costs.

From December 31, 2021we have had $62.3 million in cash, cash equivalents and restricted cash. The following table presents a summary of our cash flows for the years ended December 31, 20212020 and 2019 (in thousands):

                                                                Year ended 

the 31st of December,

                                                          2021           2020           2019
Net cash provided by (used in):
Operating activities                                   $ (25,232)     $ (54,411)     $ (28,532)
Investing activities                                         (41)          (186)           (35)
Financing activities                                      44,597        

37,278 14,273 Net increase (decrease) in cash and cash equivalents $19,324 ($17,319) ($14,294)


Operating activities

Net cash used in operating activities was $25.2 million for the year ended
December 31, 2021 compared to $54.4 million and $28.5 million for the years
ended December 31, 2020 and 2019, respectively. Net cash used in operating
activities was attributable to a net loss of $42.5 million for the year ended
December 31, 2021 compared to net losses of $72.1 million and $41.1 million for
the years ended December 31, 2020 and 2019, respectively. Net loss for the year
ended December 31, 2021 includes revenue of $49.6 million, recognized under our
Collaboration Agreements with Mundipharma and Janssen. Net loss for the years
ended December 31, 2020 and 2019 includes revenue of $12.1 million and
$20.9 million, respectively, recognized under our Collaboration Agreement with
Mundipharma. For all periods presented, the primary use of cash was to fund
research and development activities for our product candidates, which activities
and uses of cash we expect to continue to increase for the foreseeable future.

Investing activities

Our investing activities during the years ended December 31, 20212020 and 2019 correspond to acquisitions of property, plant and equipment.

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Fundraising activities

Net cash provided by financing activities during the year ended December 31,
2021 consisted primarily of (i) net proceeds of $36.6 million from the sale of
17,064,511 shares of common stock and 774,194 shares of Series X Convertible
Preferred Stock pursuant to concurrent underwritten public offerings and (ii)
$12.5 million, after deducting placement agent fees, from the sale of 5,608,510
shares of common stock under our Sales Agreement, offset by principal payments
of $4.4 million made in connection with our loan from Pacific Western Bank.

Net cash provided by financing activities during the year ended December 31,
2020 consisted primarily of (i) net proceeds of $29.2 million from the sale of
6,639,307 shares of common stock and 531,288 shares of Series X Convertible
Preferred Stock pursuant to the exercise of subscription rights issued in our
rights offering and (ii) $11.0 million, after deducting placement agent fees,
from the sale of 3,430,790 shares of common stock under our Sales Agreement,
offset by principal payments of $3.0 million made in connection with our loan
from Pacific Western Bank.

Net cash provided by financing activities during the year ended December 31,
2019 consisted of (i) net proceeds of $9.0 million from the sale of 4,781,408
shares of common stock under the Mundipharma Stock Purchase Agreement and (ii)
$5.3 million, after deducting placement agent fees, from the sale of 2,095,887
shares of common stock under our Sales Agreement.

Working capital requirements

We performed an analysis of our ability to continue as a going concern. We
believe, based on our current business plan, that our existing cash and cash
equivalents will not be sufficient to fund our obligations for the next twelve
months. Our ability to execute our operating plan depends on our ability to
obtain additional funding through equity offerings, debt financings or potential
licensing and collaboration arrangements. We plan to continue to fund our losses
from operations through cash and cash equivalents on hand, as well as through
future equity offerings, debt financings, other third party funding, and
potential licensing or collaboration arrangements. There can be no assurance
that additional funds will be available when needed from any source or, if
available, will be available on terms that are acceptable to us. Even if we
raise additional capital, we may also be required to modify, delay or abandon
some of our plans which could have a material adverse effect on our business,
operating results and financial condition and our ability to achieve our
intended business objectives. Any of these actions could materially harm our
business, results of operations and future prospects.

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